CHICAGO RIVET & MACHINE CO.

INDEX

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31, 2021 and December 31, 2020

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Shareholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.  In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 20212022 (unaudited) and December 31, 20202021 (audited) and the results of operations and changes in cash flows for the indicated periods.  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these unaudited financial statements in accordance with applicable rules. Please refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  The results of operations for the three month period ended March 31, 20212022 are not necessarily indicative of the results to be expected for the year.

2.  The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry.  The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States.

3.  The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business.  While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’sCompany's financial position.

4.  Revenue—Revenue - The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines.  Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.  For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure.  Labor incurred and specific material costs are compared to milestone payments per sales contract.  Based on our experience, this method most accurately reflects the transfer of goods under such contracts.  During the first quarter of 2021,2022, the Company realized $235,210did not realize any revenue related to such contracts and $120,879 is the remaining performance obligation undercontracts.  As of March 31, 2022, there are no such contracts which the Company expects to recognize as revenue in the second quarter.outstanding.

Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue.  Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income.  These adjustments primarily relate to customer returns and allowances.  The Company records a liability and reduction in sales for estimated product returns based upon historical experience.  If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time.  As of March 31, 20212022 and December 31, 20202021 reserves for warranty claims were not material.  Cash received by the Company prior to shipment is recorded as unearned revenue.

Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.

Sales commissions are expensed when incurred because the amortization period is less than one year.  These costs are recorded within selling and administrative expenses in the statement of income.

7.  Segment Information—The Company operates in two business segments as determined by its products.  The fastener segment includes rivets, cold-formed fasteners and parts rivets and screw machine products.  The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines.

Information by segment is as follows:

8. COVID-19—In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the response domestically and internationally to combat it has had a significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March 2020, most states issued executive orders which temporarily closed businesses deemed non-essential in an effort to limit the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers were adversely affected. Since some of our customers are classified as essential businesses and were allowed to continue to operate during this period, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the industry was idled for an extended period of time during the second quarter of 2020 due to employee safety concerns. While most shut-down orders were lifted late in that quarter, various work-related restrictions remained in place and the economic fallout lingers. Due to the rapidly changing business environment and heightened degree of uncertainty resulting from COVID-19, we took measures to reduce expenses and conserve capital during this period, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. In the second half of 2020, we experienced improved demand as government-imposed restrictions were relaxed. However, the timing and sustainability of any broad economic recovery is uncertain and will likely be tied to the course of the pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

CHICAGO RIVET & MACHINE CO.

Item 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Net sales for the first quarter of 20212022 were $9,304,949$9,197,696 compared to $7,576,455$9,304,949 in the first quarter of 2020, an increase2021, a decline of $1,728,494,$107,253, or 22.8%1.2%. The increasemodest decline was the result of greater demandprimarily due to a lower average selling price on machines sold in both our fastener segment and our assembly equipment segment as the outlook forcurrent year compared to the global economy improved andyear earlier period.  The lower sales combined with higher operating costs in the post-pandemic recovery appears to be underway. The increase in salescurrent year resulted in a lower net income of $447,313, or $0.46 per share, compared to $540,128, or $0.56 per share, in the first quarter of this year compared to $56,568, or $0.062021.  During the quarter, a regular quarterly dividend of $0.22 per share was paid.

Fastener segment revenues were $8,153,833 in the first quarter of 2020. Improved operating conditions in the current year allowed for the restoration of the regular quarterly dividend2022 compared to $0.22 per share after being reduced at the onset of the pandemic in 2020.

Fastener segment revenues were $8,148,678 in the first quarter of 2021, compared to $6,737,397 in the first quarter of 2020, an increase of $1,411,281,$5,155, or 20.9%0.1%.  The automotive sector is the primary market for our fastener segment products and sales to automotive customers were $5,059,469$4,904,183 in the first quarter this year compared to $4,413,737$5,059,469 in the first quarter of 2020, an increase2021, a decline of $645,732,$155,286, or 14.6%3.1%.  This compares favorably to the 15.7% decline in North American light vehicle sales in the first quarter increase in U.S. light-vehicle salesas the automotive industry continues to be negatively impacted by shortages of 11.8%.critical components.  Fastener segment sales to non-automotive customers were $3,089,209$3,249,650 in the first quarter of this year compared to $2,323,660 in the first quarter of 2020, an increase of $765,549 or 32.9%. The spread of the coronavirus pandemic late in the first quarter of 2020 was the primary factor in the lower sales reported that quarter as nearly all the markets we serve were negatively impacted. The increase in sales$3,089,209 in the first quarter of 2021, was the primary factor contributing to the $564,678an increase in fastenerof $160,441 or 5.2%.  Fastener segment gross margins to $1,656,629 from $1,091,951were $1,558,909 in the first quarter of 2020. While2022 compared to $1,656,629 in the improvement in gross margins was significant, wefirst quarter of 2021, a decline of $97,720, or 5.9%.  We have experienced price increases in various manufacturing costs, including steel, our primary raw material, which has increased approximately 11%37% compared to the first quarter of 2020. Labor costs, which have been held down due to the pandemic, are also expected to increase in the near-term.2021. 

Assembly equipment segment revenues were $1,043,863 in the first quarter of 2022 compared to $1,156,271 in the first quarter of 2021, compared to $839,058 in the first quartera decline of 2020, an increase of $317,213,$112,408, or 37.8%9.7%.  The increase in sales in the current year isdecline was primarily due to an increase in the number anda lower average selling price ofon machines sold in the current year as well as improved tool sales. The increase in netyear.  Lower sales contributed to a $159,332 increase$80,495 decline in segment gross margin from $218,476 in 2020 to $377,808 in 2021.2021 to $297,313 in 2022. 

Selling and administrative expenses during the first quarter of 20212022 were $1,362,201$1,295,664 compared to $1,285,334$1,362,201 recorded in the first quarter of 2020, an increase2021, a decrease of $76,867,$66,537, or 6.0%4.9%.  The increasedecrease was primarily due to a $57,000 increasereduction in profit sharingpayroll expense relatedcompared to improved operating profit in the current year quarter and a $15,000 increase in sales commissions due to greater sales in the current year.earlier quarter.  Selling and administrative expenses were 14.6% and 17.0%declined to 14.1% of net sales in the first quarter of 2021 and 2020, respectively.2022 from 14.6% in the first quarter of 2021.

Other Income

Other income in the first quarter of 20212022 was $17,892$9,755 compared to $46,475$17,892 in the first quarter of 2020.2021.  The decrease is primarily related to a reduction in interest income on certificates of deposit due to lower interest rates and lower balances invested in the current year.

Income Tax Expense

The Company’s effective tax rates were approximately 21.7%21.6% and 21.0%21.7% for the first quarter of 20212022 and 2020,2021, respectively.

Liquidity and Capital Resources

Working capital improved to $17,092,651$17,832,179 as of March 31, 20212022 compared to $16,566,289$17,421,585 at the beginning of the year.  During the quarter, accounts receivable increased by $1,706,441,$990,427, due to the greater sales activity during the quarter compared to the fourth quarter of 2020,2021, and inventory increased by $1,158,666 as$1,093,460 due to higher raw material purchases were acceleratedprices and the increase in advance of higher prices.quantities on hand to minimize supply disruptions.  Partially offsetting these changes were increases in accounts payable and accrued expenses related to the greater level of operating activity during the first quarter.  Other items impacting working capital in the first quarter were capital expenditures of $116,463,$120,594, which consisted primarily of equipment used in fastener production activities, and dividends paid of $212,549.  The net result of these changes and other cash flow activity was to

leave cash, cash equivalents and certificates of deposit at $6,065,766$4,056,417 as of March 31, 20212022 compared to $7,300,731$4,777,954 as of the beginning of the year.  Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.

Results of Operations Summary

Results in the first quarter improved dramatically comparedreflected steady demand overall, but demand from automotive customers, our primary customer market, was constrained by continued pandemic-fueled chip and parts shortages.  These conditions are expected to the first quarter of 2020, when the COVID-19 pandemic and the resultant widespread shut-downs started to push the global economy into recession. While the pandemic is not entirely under control, the wider availability of vaccines has allowed for fewer COVID-related restrictions and an improved economic outlook. We will continue to monitor the impact of the pandemic on all aspects of our operations and act as necessarypersist in the best interests of our employeesnear-term.  Higher operating costs related to accelerating inflation and a tight labor market further weighed on results during the Company. While demand improved in the first quarter, some automobile manufacturers have recently reduced operations due to shortages of critical components. These disruptions could result in reduced demand for our products. We have also experienced higher prices for various commodities compared to last year and longer lead times for certain items.quarter.  Cost increases can be difficult to recover and further increases are expected.  These factors, as well as thelingering uncertainties related to COVID-19, are expected to continue to present challenges in the near-term.  As we face these challenges, we will make adjustments to our activities which we believe are necessary based on market conditions, while continuing to pursue opportunities to develop new customer relationships and build on existing ones in all the markets we serve.

Forward-Looking Statements

This discussion contains certain “forward-looking statements”"forward-looking statements" which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein.  Factors which may cause such differences in events include, those disclosed under “Risk Factors”"Risk Factors" in our Annual Report on Form 10-K and in the other filings we make with the United States Securities and Exchange Commission.  These factors, include among other things: risk related to the COVID-19 pandemic and its related adverse effects, conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales with major customers, risks related to export sales, the price and availability of raw materials, supply chain disruptions, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, information systems disruptions, the loss of the services of our key employees and difficulties in achieving cost savings.  Many of these factors are beyond our ability to control or predict.  Readers are cautioned not to place undue reliance on these forward-looking statements.  We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

CHICAGO RIVET & MACHINE CO.

Item 4. Controls and Procedures.

(a)  Disclosure Controls and Procedures.  The Company’sCompany's management, with the participation of the Company’sCompany's Chief Executive Officer and President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’sCompany's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act")) as of the end of the period covered by this report.  Based on such evaluation, the Company’sCompany's Chief Executive Officer and President, Chief Operating Officer and Treasurer have concluded that, as of the end of such period, the Company’sCompany's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b)  Internal Control Over Financial Reporting.  There have not been any changes in the Company’sCompany's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II —-- OTHER INFORMATION

Item 6.  Exhibits